Senate Mulls Tariffs on China

Senate Blames China for US Unemployment

In a move not unrelated to the elections, the Senate threatens to penalize China for unfair trade practices, cites currency manipulation.

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Amiel Ungar, 04/10/11 17:12

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The unemployment issue is taking front and center in the 2012 US presidential election campaign and it is not coincidental that the Democratic controlled U.S. Senate is toying with the idea of imposing "retaliatory" tariffs upon China for currency manipulation.

The charge is that the People's Republic of China is artificially keeping its currency -the Yuan --low to enjoy an unfair competitive advantage over the United States. This results in a loss of American jobs.

One of the leaders behind the move is the senior New York Senator Chuck Schumer. According to Schumer, Chinese currency manipulation has cost his state more than 160,000 jobs in the past decade.

Schumer also claims that Chinese intellectual property theft also provides an unfair competitive advantage. It was time for the United States to become Uncle Sam rather than "Uncle Sap" said Schumer.

Blaming China is popular, particularly since China is currently viewed as America's main global rival and even possible successor as power number one.

For the Democrats in the Senate, the passage of punitive measures against China would present the Republican controlled House with a real headache.

The Republicans are currently the party of free trade policy but if they refuse to go along with the Senate initiative, it could make them unattractive in America's industrial heartland. This would include states such as Michigan, Pennsylvania and Ohio that are ripe for defection to the Republican column.

Despite the potential political advantage, the White House may not be orchestrating this measure from behind the scenes. The executive branch has traditionally resisted congressional encroachment upon important foreign policy matters and Sino-American relations rank near the top of American foreign policy concerns.

China is naturally upset by these developments and warns that they could touch off a trade war precisely at a time when the global economic system requires stability.

Referring to the Brooklyn Bridge demonstrations, China claims that "some U.S. lawmakers are, tediously, again trying to blame the Chinese currency instead of addressing the real reasons for the country's economic woes."

If the exchange rate between the dollar and the yuan was the real reason for American employment difficulties, how is it, argue the Chinese, that although China's currency appreciated more than 20% against the dollar since 2005, American's trade deficit with China has ballooned.

The Central Bank of China has made the exchange rate more flexible and China's currency has gained against the dollar by 7% since June 2010. The Americans, they posit, would be best off to allow China to continue its gradual reform rather than rock the boat.

China, which is losing the low priced end of the market to countries such as Bangladesh and Vietnam, would like to avoid a further appreciation of its currency.